Nearly 20 years after its establishment on the Iron Range, the fiscal disparities program continues to generate controversy.

According to documents from the state of Minnesota, the program was established on the Iron Range in 1996 using a model in place in the seven-county metro area since 1971. The concept “was set up to share commercial-industrial tax base” throughout the Taconite Tax Relief Area.

It requires each taxing jurisdiction to contribute 40 percent of the growth in its commercial, industrial tax base to an area-wide pool. Counties in the Iron Range pool include Aitkin, Cook, Crow Wing, Itasca, Koochiching, Lake and St Louis.

The fiscal disparities program has long been a point of contention on the Iron Range. Communities in Itasca County have a strong commercial, industrial and utility tax base. The net result is that Itasca County exports commercial taxes to the eastern Iron Range – now at a level of about $ 3 million annually – according to the Itasca county auditor. Many on the eastern side of the Iron Range, however, contend that Itasca County receives more money through taconite assistance than it sends back through fiscal disparities.

Those points and counter-points have waxed and waned in the years since the program was implemented. But recent spikes in fiscal disparities payments have left a bad taste in the mouths of some West Range taxpayers and put West Range DFLers on the defensive when it comes to explaining the merits of the program at home.

Court battle and controversy

The fiscal disparities program came under fire not long after its implementation. In September of 2000, District Court Judge Jon Maturi ruled the program unconstitutional after Jeff Walker, the then-mayor of Cohasset, joined by local business JR Properties, took the fiscal disparities issue to court.

Two later rulings – one from the Minnesota Court of Appeals and a second from the Minnesota Supreme Court – upheld the program.

Former state representative Tom Rukavina of Virginia strongly backed fiscal disparities. He argued at that time that the program was enacted on the Iron Range to “correct some of the imbalances that (exist with) communities taconite-producing mines,” according to a 2002 news story compiled by Murphy McGinnis Media reporters.

That argument is still pervasive today. Rep Tom Anzelc, DFL-Balsam, told Itasca County Commissioners during a legislative recap session this spring that the county receives eight times more in taconite assistance than it collectively gives through the fiscal disparities program.

But several with ties to the local business community say that argument doesn’t always hold water.

Walker, who is now the Itasca County auditor, said that those who argue fiscal disparities on the basis of inequity in taconite assistance are missing the point.

If issues exist around taconite tax distribution, they should be fixed independently from fiscal disparities, he said.

“I think it’s (fiscal disparities) bad tax legislation,” Walker said. “I believe that a local tax should remain local and be controlled locally.”

Fiscal disparities taxes are determined by a formula, added Walker, and there’s no recourse for taxpayers when the tax goes up. Local property taxpayers, in contrast, can contact city or county officials to address other local tax issues.

Another common argument is that fiscal disparities took an urban taxing program and implemented it on a rural model – one that doesn’t share resources in the same way as does the seven county metro area.

Renewed discord

While the issue has long raised hackles on the Iron Range, this year, renewed focus has been placed on the program. A study conducted by the Minnesota Department of Revenue and released earlier in 2014 revived tensions between the East and West Range.

That study found that the fiscal disparities tax base sharing pool has “grown significantly” in recent years – largely attributable to growth in the commercial, industrial and utility tax base.

Some commercial taxpayers say they saw big spikes in 2013.

Spikes, said Anzelc, are largely due to upgrades at Minnesota Power’s Clay Boswell facilities in Cohasset and Enbridge pipeline construction.

But, that’s little immediate consolation to locals paying the tax.

Davin Tinquist is an Itasca County commissioner but he’s also co-owner of Cohasset Mill and Lumber. He reported that fiscal disparities taxes increased from 300 to 500 percent for local taxpayers between 2012 and 2013. At a public meeting earlier this year, he said his own tax had risen from under $300 to $1,100 during that time frame.

“We didn’t budget for that kind of increase,” said Tinquist.

Itasca Economic Development Corp. President Mark Zimmerman added that the fiscal disparities report created a lot of angst in the local business community.

“The one thing I’ve heard loud and clear from everybody is that we shouldn’t have it,” Zimmerman said, noting it penalizes communities with growth, and when the level of taxation is unpredictable, it is difficult for businesses to budget accordingly.

Repeal is definitely on the radar for some business concerns in Itasca County, but political will is lacking.

Anzelc and State Sen. Tom Saxhaug, DFL-Grand Rapids, at the request of several local government entities put forward legislation this past session calling for the repeal of Iron Range fiscal disparities.

Anzelc said the proposals went nowhere after other members of the Iron Range delegation suggested that if fiscal disparities were repealed, then towns on the West Range, including Grand Rapids, LaPrairie and Cohasset, might be legislatively excluded from taconite assistance.

“As a commissioner, I understand the argument about taconite tax relief,” said Tinquist, “but as business owners, we don’t see that. We see a tax item on our bill and don’t see what’s coming back.”

That’s a point of frustration for Anzelc as well, who has stated at a number of local public meetings that tax statements don’t adequately reflect the benefits to taconite tax relief to taxpayers.

While repeal might have little traction throughout the Iron Range, revamping the fiscal disparities program to prevent huge spikes appears to achieve that old-fashioned political litmus test known as the “art of the possible.”

Anzelc said that he and Saxhaug have approached the state revenue department, and he expects it will recommend administrative changes that would prevent spikes in future rates.

“Right now, we’re waiting for revenue to give us a pathway to provide some relief for our businesses,” said Anzelc.

Some, however, on the western end of the Iron Range seem to be aiming for more than just tweaking the tax.

“If public sentiment remains against this, we have a better chance of repealing it,” said Walker. “Grassroots pressure has a lot to do with what happens in St. Paul.”